They've use your standard skinning and UV textures, difference being theirs are monochrome. You can read up about it here.
http://www.cgw.com/Publications/CGW/2009/Volume-32-Issue-6-June-2009-/Its-a...
.... but an easy emulation would be to use an "Ink n Paint" material. Alternatively use a standard material with a "Falloff" in the Diffuse slot, use a Shadow/light whilst in the Mix curve add two points near the centre and move them up and down respectively to get a hard black to white gradient.